- Airlines have been crippled by a slump in travel thanks to the spread of coronavirus.
- Many carriers around the world have seen market values decline by more than 50% in recent months and their financial health could soon be in question.
- Sydney-based CAPA consulting is warning that most of the world's airlines could go bankrupt and is urging inter-governmental action to avoid it.
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The rapid spread of the coronavirus has brought the airline industry to its knees, and a major consulting firm is warning that more than half of the world's airlines could go bankrupt within months without action to save it.
"As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants," the CAPA Centre for Aviation, based in Australia, said Sunday night as yet more airlines slashed long-haul and intra-European service.
Since the start of the year, airlines have seen their market values decimated alongside the spread of the coronavirus, with many seeing their stock prices decline by more than 50%. The lull in bookings is on track to outpace the slump following the terrorist attacks of September 2001, some Wall Street analysts have warned.
As of Monday morning, more than 169,000 people worldwide had been sickened - with 3,774 of those cases in the United States.
"Cash reserves are running down quickly as fleets are grounded and what flights there are operate much less than half full," CAPA said in its blog post. "Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying. Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon."
CAPA isn't the only party sounding the alarm about potential bankruptcies.
"We previously stated US airline bankruptcies were unlikely and in the near-term that still remains the case," analysts at Cowen said in a note to clients last week. "BUT if bookings do not improve in the next 3 months things could deteriorate quickly."
US Treasury Secretary Steven Mnuchin said the previous week that airlines were "at the top of the list" as the White House mulled possible economic stimulus measures which also included a payroll tax cut. Following the attacks in 2001, American lawmakers swiftly approved a $15 billion financial aid package for US airlines. Some US and UK airlines have already begun to lobby for some form of assistance.
But government assistance is only half the solution, says CAPA.
As lawmakers in individual countries seek to shore up carriers within their borders, the industry is at risk of further fragmentation, according to the firm.
"An unstructured and nationalistic outcome will not be survival of the fittest," CAPA said. "It will mostly consist of airlines that are the biggest and the best-supported by their governments. The system will reek of nationalism. And it will not serve the needs of the 21st century world."
Instead, CAPA says, it's a chance to bolster international aviation groups.
"It is imperative that the world's aviation forces - ICAO, the EU, IATA, the regional aviation associations and the key aviation nations - start the dialogue towards cooperation and establishing a 21st century regime that will truly satisfy the needs of the world's social and economic needs."